In this unpredictable world, no one is totally insulated from lawsuits. Fallout on a business deal, estranged partners, default in loan payment, divorce, and accidents, can all result in lawsuits that target your assets. As such, worthy people, property owners, business owners, and high earners should always employ strategic measures that can help protect properties from such unpredictable legal battles.
The good news is that protecting your assets is not as complex as it seems. Individuals and businesses can adopt several asset protection techniques to limit the kind of properties creditors and litigants can target/attach during a lawsuit without flouting the debtor-creditor law.
What is asset protection?
It is illegal for anyone to conceal or transfer their properties into other’s names to hide them from legal attachments; hence the need for asset protection. Asset protection is basically the implementation of measures to protect one’s property or wealth. With it, an individual or company can protect their assets from creditors and other legal claims. However, you shouldn’t wait until a claim or lawsuit is initiated before racing to protect valuable properties.
It is therefore important to have a plan and determine the assets that need protection. Afterward, you can choose a favorable method of protection for each asset. The goal is to prevent losing everything in case of lawsuits.
Why asset protection is important
Protecting your assets from litigants and creditors is very important so far as you have assets that can be vulnerable to such pursuits. This is even more critical for persons in litigation-prone professions like doctors, and business owners or executives. Even a divorce or accident can lead to your properties being garnished.
Regardless of how safe you think you are from future legal cases, protecting your assets can save you from losing all or some of your wealth through litigations. It practically serves as a barrier between you and potential creditors.
Exemptions
Not all assets can be subjected to lawsuits. Under the United States federal bankruptcy and the Employee Retirement Income Security Act of 1974 (ERISA) laws, retirement plans are exempted from creditors’ lawsuits. So, feel free to build your retirement plan with expert advice from the likes of Samuel Dixon, RFC, who focuses on retirement planning, IRA legacy planning, and investments for retirees, executives, and small-business owners.
Some states also have laws that limit the extent a creditor can go with their claims. The likes of home equity below a certain value, and some personal belongings cannot be subject to claims. There are various state laws that also insulate business owners and those into limited partnerships, and limited liability corporations from any business liabilities.
Asset protection methods
In protecting your properties, individuals and companies can use family-limited partnerships, asset protection trusts, or accounts-receivable financing methods. Debtors with few assets may have to file for bankruptcy, which is a more favorable process compared to protecting those few assets. Let’s now delve deeper into some of the asset protection measures.
Domestic asset protection trusts
Being one of the most affordable asset protection policies, domestic asset protection trusts cushion your domestic assets like stock, LLCs, cash, real estate, etc. from potential creditors. This irrevocable trust is needed only if you envisage having creditors in the future. Once you sign on to such trusts, you may not be able to change them.
Limited liability company (LLC)
Setting up a limited liability company is one of the best ways business owners can protect their assets from lawsuits. It can protect all your personal assets from being seized or subjected to lawsuits by creditors when the business fail. This means personal assets like cars, homes, and other assets are free from all business-related creditors. Nonetheless, all business assets wouldn’t be exempted from creditors’ pursuits.
Prenuptial agreements
After a divorce, properties acquired during the marriage are mostly shared among the couples according to an approved percentage. But this can be prevented with the signing of a prenuptial agreement before the marriage. This agreement can limit the properties an estranged partner can receive during a divorce process. However, joint properties may not be subject to this agreement.
Buy an insurance policy
You can purchase a liability policy that can protect your assets in case of any uncertainties. Depending on the terms and conditions of the policies and scope of cover, the policy can protect your home, savings, and other properties. You can purchase insurance policies life malpractice policy, an umbrella policy, or a life insurance policy to cover you from creditors and litigants’ claims.
Alternative dispute resolution (ADR)
There are always alternatives to going to court for a long and expensive legal battle. You can reach out to your creditors for a settlement agreement through mediation and arbitration. For example, during a malpractice case, the offender can negotiate with the victim on a settlement deal to avoid being sued. The parties can involve an attorney to ensure that the agreement met become legally binding. This can be applied in any other case including divorce settlements, and business deals.
Bottom line
Despite the importance of asset protection, never rush your way through the process. Of course, there are several firms or experts that may be promising good policies or deals, but you need to watch before you leap. Do your own research or seek recommendations from friends or business partners before choosing a service provider. You can hire an attorney to guide you through the process.
